In a significant move outlined during the 2023 Autumn Statement, the Chancellor introduced new regulations to address potential double charges on income subjected to IR35/off-payroll taxes. Let's delve into the details of these proposed changes and understand the full scope of their implications.
In November 2023, the Chancellor pledged amendments to the law to enable tax credits for personal tax paid on trading income, later determined to fall under the IR35/off-payroll rules. This crucial change aims to prevent scenarios where HMRC could potentially collect taxes and National Insurance contributions twice on the same earnings.
Consider Imran, a sole trader offering services on a self-employed basis. After discussions with HMRC, Imran and his clients acknowledged the application of IR35/off-payroll rules, requiring the deduction of PAYE tax, NI, and Class 1 employers' NI from his earnings. However, Imran has already paid taxes through self-assessment. The new rules allow HMRC to proportionately reduce PAYE tax and NI bills by the taxes paid through self-assessment.
Similarly, if a worker operates through an intermediary like a personal company, the new rules enable tax paid by the intermediary to offset any tax and NI obligations arising from the application of IR35/off-payroll rules.
While the set-off of tax and NI isn't automatic, it's initiated either by HMRC issuing a formal ruling to the worker's client or by the employer making a formal offer to settle the taxes.
Effective from April 6, 2024, the new regulations can also have retrospective application, potentially dating back to the 2017/18 financial year. HMRC has released draft legislation and guidance notes for consultation, inviting suggestions from businesses and tax experts to refine the proposed changes.
As the new IR35 legislation takes shape, it's crucial for businesses, workers, and tax experts to stay informed and participate in the consultation process. Understanding the implications and potential retrospective application can help navigate the evolving landscape of tax compliance and ensure readiness for the upcoming changes.
